NO LETUP IN FED BOND-BUYING EXPECTED

Aggressive strategy likely to continue even with fiscal cliff solution

The Federal Reserve is widely expected to announce today that it will continue buying Treasury securities to stimulate growth in the new year.

The Fed’s public declaration in September that it would buy bonds until the outlook for the labor market “improved substantially” has cleared away much of the uncertainty and controversy that usually precedes such announcements.

The economic recovery remains lackluster, and millions are looking for work. But while some analysts question the central bank’s ability to improve the situation, few doubt that the Fed, under its chairman, Ben S. Bernanke, is determined to keep trying.

Indeed, while Fed officials continue to warn that a failure to avert scheduled tax increases and spending cuts next year would overwhelm their efforts and plunge the economy back into recession, they have also said that even if Congress and the White House negotiated a compromise, the Fed’s efforts would continue.

“I am not prepared to say we are remotely close to substantial improvement on the employment front,” Dennis P. Lockhart, president of the Federal Reserve Bank of Atlanta, said in a recent speech. “I expect that continued aggressive use of balance sheet monetary tools will be appropriate and justified by economic conditions for some time, even if fiscal cliff issues are properly addressed.”

The remarks were particularly significant because Lockhart is among the moderate members of the Federal Open Market Committee, the Fed’s policymaking committee, whose support Bernanke invested months in winning before starting the new policy.

With the direction of policy clearly set, debate has turned to the details. The Fed, whose policymaking committee met Tuesday and continues today, still must determine what to buy and how much to spend, and officials continue to debate the best way to describe when the agency is likely to stop buying.

In making those decisions, the Fed must balance its conviction that buying bonds reduces borrowing costs for businesses and consumers against concerns the purchases might disrupt financial markets or inhibit its control of inflation.

Analysts say the immediate answer is likely to be more of the same. The Fed currently buys $40 billion of mortgage-backed securities and $45 billion of Treasury securities a month. Officials highlighted that $85 billion figure in September and have indicated since that it remained their rough target.

“It would be odd for them to disappoint the expectations that they have created themselves,” Kris Dawsey of Goldman Sachs wrote in a note to clients predicting the Fed would maintain both the dollar amount and the division. Other analysts have suggested the Fed might slightly decrease the total amount of purchases, to $80 billion, or increase the share of mortgage securities.

The Fed is unlikely to announce a timetable this week, analysts said. The committee has said that it does not plan to raise interest rates before the middle of 2015 and that it will stop buying bonds before it starts raising rates.

Many officials on the 12-member committee — perhaps even a majority — would prefer to substitute economic objectives for guidance set by the calendar. The Fed’s ability to reduce borrowing costs derives in part from persuading investors that interest rates will remain low. Telling investors how the economic situation must change in order to warrant a change in policy could be more convincing, and therefore more potent, than simply publishing an estimated endpoint, these officials say.